Non-Performing Assets and Bank Profitability in Nepal: Evidence from a Panel Data

This study investigates the impact of non-performing assets (NPAs) on the profitability of Nepalese commercial banks from 2017 to 2022.A panel regression analysis is conducted using annual data from 21 banks over 5 years, comprising 105 observations.Net interest margin (NIM) is the dependent variable while NPAs, loan loss provision, loanto-deposit ratio, return on investment, and capital adequacy ratio are the explanatory variables.The fixed effects model reveals a statistically significant negative relationship between NPAs and bank profitability, suggesting the need for robust credit risk management.However, limitations include the small sample size and focus only on internal determinants.Future researchers can expand on this foundation by using different research methods, enlarging the sample size, and considering economic conditions, policies, and external factors to gain further insights.The study offers practical implications for mitigating the adverse impacts of NPAs on bank earnings.